Budget 2020: Likely Impact on Long Term Capital Gains (LTCG)

With the current economic slump in the country, the upcoming Budget 2020 announcements are possibly one of the most anticipated in recent times. A wide range of revisions, cuts and developments are expected from these announcements. Not only are they being predicted to be favourable to industries and market participants, but to the average taxpayer as well. 

In particular, analysts are placing their bets on Budget 2020 providing considerable relaxation in taxes on Long Term Capital Gains, or LTCG tax. The LTCG tax was reintroduced (after a period of 14 years) merely two years ago in 2018. However, considering the recent slowdown across industries, the loosening of LTCG tax laws will help provide a much-needed impetus in the economy.

STCG and LTCG Taxation 

*LTCG of over Rs. 1 lakh on equity will be taxed at the rate of 10%. 

** With indexation. 

Source: Livemint

Relaxation of LTCG tax on Sale of Property

Firstly, there is speculation that Budget 2020 might be doing away with capital gains entirely on sale of property. At present, if the owner of  a property sells it after a period of 24 months, he or she has to pay 20% with indexation benefits on Long Term Capital Gains. Moreover, one has to pay 30% on capital gains, if he or she does not invest that money back into property within a period of 3 years. The new Budget, however, might scrap capital gains on property sale and therefore, provide some much-needed relief to not only property owners but the real estate sector as a whole.

Lowering of Holding Period

Prior to Budget 2018-2019, capital gains on all forms of assets held for at least one year were deemed tax-free. However, at present, LTCG taxes are payable on equity  held for 1 year, property for 2 years, and gold for 3 years. It is expected that with the Budget 2020 proposals, the LTCG tax on all of these asset classes will become payable under a uniform holding period. The duration for LTCG tax is predicted to be 24 months or two years for all assets.

On the market participation front, a simpler and more standardised LTCG tax system would provide greater transparency and make the process simpler for investors across the board. It will provide considerable relief to investors in equity, as the LTCG holding period for their equity assets will practically double with this announcement. It will also reinvigorate the stock market, raise interest in stocks, bonds and commodity investment, and encourage long-term investment.

Scrapping LTCG tax on all asset classes

Another bolder, more disruptive move for the Finance Minister would be to scrap the LTCG tax entirely. It is said that the LTCG taxes were brought back in 2018  in order for the Government to collect Rs. 40,000 crore annually. However, the actual collections have not succeeded in meeting this number and hence, the LTCG taxes are now merely deterrent for investments, domestic and foreign. Slashing or doing away with LTCG taxes on listed equities is bound to attract more foreign, long-term investments. In order to incentivise foreign investors, India must compete with global markets that do not levy taxes on Long Term Capital Gains. It is expected that Budget 2020 will provide a strong motivation for Foreign Portfolio Investors (FPIs) to redirect their attention to the Indian market and boost foreign investments as a whole.

Conclusion

With the expected changes in Long Term Capital Gains in the upcoming Budget 2020, there is certain to be a considerable amount of relief for taxpayers across the board. Most importantly, there are sure to be profitable revisions in LTCG tax laws related to equity. This makes equity investments for wealth creation an even more lucrative option than before. Therefore, if you have been keen on investing in equity but have been held back by the LTCG taxes, now might be a good time to reconsider. 

To that end, you can consider investing in equity via our 3-in-1 DEMAT, Trading and Savings account. With this 3-in-1 DEMAT, Trading and Savings account, you can invest in the equity instruments of your choice, based entirely on your financial goals and risk appetite. For instance, you can invest for the long term with our cash product, or opt for the systematic investment route with one of our Equity SIPs.

At Axis Direct, you can even make the most of our intraday product by paying as low as 15%. By using our other equity-based investments such as our inter-settlement product, cover product, or E-margin product, you too can make the most of the revisions on the LTCG taxes by investing today.